ITO (IT) 2(1)(1), MUMBAI vs. ADMINISTRATOR OF THE ESTAE OF E.F. DINSHAW, MUMBAI

The Revenue has raised the following grounds of appeal:

The brief facts of the case are that the assessee, administrator of estate of late Mr. Edulji Framrize Dinshaw, is assessed as an individual and in the capacity of representative of the assessee filed its return of income for the AY. 2011-12 on 29.07.2011 declaring total income of Rs.1,33,34,503/-, comprising of income from short term capital gains and income from other sources. In addition, the assessee had also disclosed long term capital loss of Rs.18,99,26,806/- and carried forward said loss u/s 74 of the Income Tax Ac,1961. The case of the assessee was selected for scrutiny, and notices under section 143(2) and 142(1) of the Income Tax Ac,1961 were issued. In response to notice, the authorised representative of the assessee Shri Dilip S. Damle attended from time to time and filed various details as called for.

During the course of assessment proceedings, the AO noticed that the AIR information available in the departmental data base system shows the records of 19 number of registration details with respect to transfer of immovable properties worth Rs.85,52,30,000/- and CIB information of 43 transactions of Rs.36,31,00,000/- entered into by the assessee or on assessee behalf during the F.Y. 2010-11 relevant to A.Y. 2011-12, but no income from said transaction has been offered to tax under the head capital gains, therefore, he called upon the assessee representative to explain and reconcile AIR data base with return of income filed for the relevant year. In response, the authorised representative of the assessee filed a letter dated 18.12.2013 and explained information available in AIR data base and also contended that amount received towards agreement for sale of properties, i.e. flats in the building owned by the assessee cannot be treated as transfer u/s 2(47)(v) read with section 53A of the transfer of properties Act, 1882. The relevant written submissions of the assessee have been reproduced by the AO in assessment order at para. 5.2 on pages 3 of assessment order.

The facts culled out from the records in respect of impugned dispute are that one Mr. Edulji Framrize Dinshaw a parsi American, resident of New York, USA had during his life time inherited vast tracks of land in northern suburbs of Mumbai which were acquired by his father Late F.E. Dinshaw (EFD). In February 1970, EFD executed his Will appointing his sister Ms. Bachoobai Woronzow ('BW') as the executrix of the Will for administering the Estate. The Bombay High Court vide its order dated 21st December 1972 appointed Mr. Nusli N Wadia ("NNW") as the Administrator of the Estate of EFD ("the assessee"). Mr. NNW, acting as the sole Administrator of the estate of the said E.F.Dinshaw, entered into agreements with developers of real estate (M/s Ivory Properties and Hotels Private Limited in relation to development of designated land admeasuring 205.69 acres and M/s Ferani Hotels Private Limited in relation to development of the designated land admeasuring 478.50 acres (hereinafter referred to as "developers"}. By the said agreements, the developers were appointed as Project Co- ordinators for the purpose of development and construction thereon on the immovable properties forming part of the estate of the said E.F.D. Mr. NNW as Administrator of the estate would grant a lease of the immovable properties of the estate of the said E.F.D for certain agreed period of 5 years and developers would clear the land of encroachers at their own cost and develop the properties by construction thereupon. It was agreed between the parties that whenever the spaces in the constructions are sold, NNW, acting as the sole Administrator of the estate of the said Dinshaw would be entitled to receive from the customers 12% of the consideration. Clause 12 of the said Agreements with the developers reads as under:

During assessment proceedings, he AO, after considering relevant submissions of the assessee, agreement between the parties, subsequent dispute and cancellation of agreement and power of attorney and also orders of the Hon’ble Bombay High court in civil suits came to the conclusion that although the assessee had received 12% share in sale proceeds of developed area in building constructed on the leased land, but income from said transaction has not been recognised for want of conveyance of land title. The AO further observed that if you go through the contents of agreement between the parties coupled with power of attorney given to developers, it is very clear that the assessee had voluntarily entered into lease agreement in the year 1995 and also entered into a development agreement for development of a property for agreed revenue sharing. Further, the assessee had received his share of 12% revenue from sale proceeds of developed building upto financial year 2008 and shown under the head advances from customers. He further, observed that although, there was dispute cropped up between the parties in respect of share of revenue and matter went to the Hon’ble Bombay High Court, but on perusal of orders of the Hon’ble Bombay High Court in various civil suits, the Hon'ble Bombay High court did not granted injection to the assessee nor stopped development activities in the impugned land, therefore it can be safely held that the agreement between the parties is in force subject to court verdict and the assessee is continued to receive his 12% share of revenue from sale of properties, which is evident from the fact that the developer M/s Ferani Hotels Private Limited had deposited assessee share in designated bank account. He, therefore, opined that the assessee had absolute right over the money received towards sale of property and hence amount received in the impugned assessment year, including amount received in earlier year is taxable for the impugned assessment year under the head income from business. Further, although the AO had taken a view that amount is assessable under the head business income, but subsequently changed his stand and held that the assessee’s share of 12% income from sale of flats is assessable under the head income from other sources on the ground that amount shown under the head advances is a liability which ceased to exist as liability and therefore was assessable under the head income from other sources. The AO had also taken support from the provisions of Maharashtra Flat/Apartment Owners’ Act, (MOA) Act, to come to the conclusion that there being deemed conveyance in favour of the flat purchasers, and hence income accrued in a financial year relevant to A.Y. 2011-12 becomes deemed conveyance of land. The AO further observed that the assessee is continued to receive money towards 12% share of income from sale of property and credited into advance account without offering any income, even though there is no obligation on the assessee to repay the same to the flat purchasers. The assessee was not able to prove that there existed any liability to the creditors shown in the books of accounts. As such the liability is a nonexistent and liable to be treated as income as there is cessation of liability. Even otherwise, the amendment in the Maharashtra Flat/Apartment Owners’ Act mandates deemed conveyance of title of land to the flat owners makes the condition imposed by the assessee of transfer of title of land to recognise revenue is illegal condition within Maharashtra and the accounting of receipts of sale proceeds as liability under the category of advance is also rendered illegitimate and illegal. Thus, the entire advance received up to 31.03.2011 is not an advance, but a liability which has ceased to exist or a liability which has been legally watered down by the due process of law. Therefore, he opined that entire advances received upto 31.03.2010 of Rs.269,48,90,886/- is treated as non existing liability and assessed under the head income from other sources. Similarly, the amount of advance received for the assessment year 2011-12 has been treated as non existing liability and assessed under the head income from other sources. Further, the AO had also assessed lease rental receivable from M/s. Ivory Properties and Hotels Pvt. Ltd., Mumbai and rent received from M/s. Ferani Hotels Pvt. Ltd. under the head income from other sources.

Aggrieved by the assessment order, the assessee preferred appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has filed elaborate written submissions on this issue which has been reproduced at para 5 on pages 47 to 127 of Ld. CIT(A) order. The sum and substance of arguments of the assessee before the Ld. CIT(A) are that the AO has completely ignored the judicial decisions/judgements given by the Jurisdictional ITAT as well as Hon’ble Bombay High Court, in assessee’s own case while assessing the income under the head income from other sources for which there was no reason for doing so. The assessee had also vehemently argued the issue in light of judgment of Hon’ble Bombay High Court in civil suits filed by the assessee in connection with cancellation of agreement entered with M/s. Ferani Hotels Pvt. Ltd. and subsequent findings of Hon’ble Bombay High Court that the assessee is having a prima-facie grounds for cancellation of agreement and power of attorney as such it is very clear that the Hon’ble Bombay High Court has in principle accepted the contentions of the assessee. The assessee further contended that even though agreement and power of attorney was cancelled, the developer unilaterally opened an account in bank in their name and deposited 12% share of the assessee to said bank account, however, fact remains that the account opened by the developers is nowhere connected to the assessee and also the assessee is neither operating said bank account nor used the money lying in the said bank account because the amount deposited in the said account is kept in fixed deposits under the supervision of trial court and therefore it cannot be said that money deposited in designated account is belonged to the assessee, consequently income accrued for the year under consideration. The assessee had also relied upon plethora of judicial decisions in support of his argument and argued that interim amount received pursuant to order of Court is not liable to tax in the year of receipt but it is taxable in the year when final award is passed by the Court. Since, the matter is subjudiced before the court, unless the court decides the issue finally the disputed amount cannot be considered as income accrued to the assessee.

The Ld. Sr. Counsel, Shri Parag. A. Vyas, appearing for the Revenue submitted that the Ld. CIT(A) was erred on the facts and in the circumstances of the case and in law, deleting additions made by the AO towards advance of Rs.269.48 crores on transfer of assets in light of serious dispute between the developer and the assessee regarding the validity of lease agreement as well as development right agreement. The Ld. Sr. Counsel further submitted that the Ld. CIT(A) has failed to appreciate the facts in light of various reasons given by the AO to assess advances under the head income from other sources which is evident from the fact that the Hon’ble Bombay High Court has not granted any interim relief to the assessee for cancellation of agreement dated 02.01.1995 and power of attorney. The Ld. Sr. Counsel further submitted that the first and foremost question needs to be answered is whether income arising from development agreement is in the nature of capital gains or in the nature of business income. He further submitted that income arising to the assessee from the agreement dated 02.01.1995 is taxable as business income, since on entering into the development agreement the assessee has changed its holding from that of investment to that of stock in trade. He further submitted that the term stock in trade is not defined under the Income Tax Ac,1961 and therefore a dictionary meaning may be adopted as per which the term stock in trade means, the inventory carried by a retail business for sale in the ordinary course of business. He further refers to the decision of Hon’ble Supreme Court in the case of Director General of Income Tax, Admin and others vs. GTC Industries Ltd. & ors reported in (2016) 240 taxman 209 has noted the fact that entering into a development agreement would convert land into stock in trade. The Ld. Sr. Counsel had also referred the decision of Hon’ble Supreme Court in the case of Raja J. Rameshwara Rao vs. CIT (42 ITR 179) and submitted that when land is sold in flats after development of the area to make it more attractive the same amounts to a business activity. The Ld. Sr. Counsel further submitted that the moment the assessee entered into a development agreement it becomes stock in trade of the assessee, consequently any income arising from said transaction is assessable under the head income from business. Since land was part of development agreement on entering into development agreement it becomes stock in trade based upon decisions of the Hon'ble Supreme Court of India cited above and the meaning of the term Stock in Trade. Since interim relief was refused by the Bombay High Court vide order dated 19th July 2010, the income relating to the transactions pertaining to the period from 1995-96 to 2010-11 relating to the development agreement treated as an advance by the assessee acquired the character of accrued income. The provisions of section 52 and 53A of the Transfer of Property Act enclosed marked Exhibit A may be considered in this regard. As per section 52, a third party acquires right in a property which is subject matter of a suit depending upon the result of the suit or as directed by the Court. In the instant case, the Hon'ble Bombay High Court in July 2010 rejected the motion for interim relief on the basis of equity. This is also confirmed by the Division Bench of the Bombay High Court in 2012 hence the whole of the income of the assessee shown as advance pertaining to the period from 1995 to 2008- 09 is income relating to the year 2011-12. The ld. Sr. Counsel further submitted that on taxability of income deposited in designated bank accounts for sale of flats during 2009-10 to 2011-12, it seems these deposits are under court order and as per court order dated 19th July 2010, ad interim stay has been rejected only a direction has been given that future sale of flats would be subject to concurrence of both parties. The income pertaining to sale of flats prior to the filing of the suit would be taxable for the A.Y.2011-12 as stated above while the one relating to the period after filing of the suit may be subject to the application of section 52 of the Transfer of Property Act and the order of the Bombay High Court dated 19th July 2010.

The. Ld. Sr. Counsel, further, submitted that as per the doctrine of Lis Pendens incorporated in section 52 of the Transfer of Property Act, 1882, the transfers of third parties although not illegal (as held by the Supreme Court of India in Thomson Press India Ltd vs Nanak Builders and Investors Private Limited) would depend upon the result in the pending proceedings. In the pending proceedings interim stay was refused in respect of the flats already sold by Ferani, but future sales were made effective subject to concurrence of all parties. This aspect was also overruled by the Bombay High Court Division bench in its judgment dated 19th July 2012. Since interim stay was refused by Bombay High Court one may argue that income in respect of these transactions also accrued on date of the decision in 2010. He, further, submitted that on the aspect of amount being not available to the Assessee one may see that the Assessee as per the decisions of the Bombay High Court in 2010/2012 cannot put the construction or sale of flats on hold. Hence the only issue which would remain in the equity of things would be whether it would be entitled to further compensation in addition to the 12% deposited in a designated bank account. In any view of the matter the assessee would not be receiving any amount lesser than that of 12% already being credited to the designated bank account which it can always without prejudice to its contentions seek to withdraw. It may be noted the Assessee itself on its own account had stopped accepting the 12% amount on the ground that the agreement is in dispute. Under section 11 of the Maharashtra Ownership Flats Act 1970 even the land has to be transferred to the purchaser of the Flats (society). Hence, in any view of the matter the amounts received/deposited in bank accounts (including lease rentals) as stated above are rightly treated as income of the year 2011-12. In the decision of the Bombay High Court in the Assessee's own case for A. Y. 2003-04, the Hon'ble High Court was not apprised it is respectfully submitted about the decision of the Supreme Court of India holding sale of land (based upon development contract) to be business income and follows the earlier order for years not concerned with the development agreement without either side attempting to point out the difference.

The Ld. Sr. Counsel further referring to Maharashtra Flat/Apartment Owners’ Act, 1970 submitted that section 11 of said Act, is very clear that the promoter shall take all necessary steps to complete his title and convey to the organisation of persons, who take flats, which is registered either as a co-operative society or as company or an association of flat owners, his right title and interest in the land and execute all relevant documents, therefore in accordance with the agreement executed under section 4 and if no period for the execution of the conveyance is agreed upon, he shall execute the conveyance within the prescribed period and also deliver all documents of title, relating to the property which may be in his possession or power. The Ld. Sr. Counsel further submitted that the plain reading of section 11 in conjunction with section 52A of transfer of property Act 1882, makes it very clear that once an agreement for sale is entered into between the parties, then the title and interest in the said property passed on to the buyer and consequently transfer take place within the meaning of section 2(47)(v) of the Income Tax Ac,1961. The Ld. Sr. Counsel further submitted that in this case although assessee continued to receive 12% share of income from transfer of property, but deferred recognition of revenue for indefinite period even though the developer has conveyed ownership to the flat buyers by citing a reason that he had cancelled development agreement and power of attorney. But, fact of the matter is that the Hon’ble Bombay High Court has not granted any interim relief or stay to the developer for construction work. Further, the Hon’ble Bombay High Court held that M/s. Ferani Hotels Pvt. Ltd. can continue construction activities, however further stated that no sales unless the consent of the owner. This clearly indicates that the developer is continued to develop the property and the assessee is receiving his share of income, therefore it cannot be said that amount received, towards sale of property is an advance in the nature of contingent liability. The Ld. Sr. Counsel had also extensively argued the issue in light of various clauses of agreement and findings of Hon’ble Bombay High Court in civil suit and submitted that the assessee is postponing tax liability on the income which is accrued for the year even though there is no injection or stay from the court. Therefore, the AO was right in assessed advances shown in the balance sheet under the head income from other sources and this order should be upheld.

The Ld. A.R. for the assessee further replying to argument of the Ld. Sr. Counsel for the Revenue submitted that when income from sale of flats has been consistently assessed under the head capital gains and such treatment has been finally approved by the Hon’ble Bombay High Court, then there is no reason for the AO to hold that the land has been converted into stock in trade when development agreement is entered. In fact, it is not the case of the AO that the assessee has converted investments into stock in trade thereby provisions of section 45(2) of the Income Tax Act, 1961 and subsequent sale of flats is a sale of stock in trade and resultant income is assessable under the head income from business/ profession. The Ld. A.R. further submitted that no doubt the assessee had entered into a development agreement in the year 1995 and received sale consideration wherever conveyance has been entered into to transfer right and interest in land upto assessment year 2003-04. In fact, the assessee had executed 2 sale deeds and income there from has been offered under the head income from capital gains. The AO disputed and assessed income under the head income from business or profession, but ultimately the Hon’ble Bombay High Court has held that it is assessable under the head income from capital gains. Therefore, there is no merit in arguments of the Ld. Sr. Counsel for the Revenue.

The ld. Sr. Counsel for the assessee in reply to arguments of the Ld. Sr. Counsel for the Revenue that even if income is not assessable under the head capital gains, but the AO was very much right in assessing advances shown in the balance sheet under the head income from other sources as non existing liability because the assessee was deferring incidence of tax for unlimited period on the ground of dispute between the parties and cancellation of development agreement dated 02.01.1995 and power of attorney, but fact remains that the assessee has cancelled development agreement dated 02.01.1995 in the year 2008 and a suit has been filed before the court. The assessee had also filed criminal cases against Ivory hotels and Properties Pvt. Ltd., for which the economic offence wing of Mumbai Police had filed charge sheet. In so far as agreement with M/s. Ferani Hotels Pvt. Ltd., agreement and power of attorney has been cancelled and also a civil suit has been filed in the court of law to restore the possession and the legal title of the disputed land with the assessee. The Hon’ble Bombay High Court single member judge had taken up the case for hearing, but at a time of hearing M/s. Ferani Hotels Pvt. Ltd. had challenged the application filed by the assessee on the ground of limitation. However, the Hon’ble Bombay High Court has passed an interim order and observed that the assessee had prima-facie grounds for cancellation of agreement and power of attorney. Although, the Division Bench of Hon’ble Bombay High Court has suspended the judgment of Hon’ble Single Judge, but has not given any finding in respect of dispute between the parties, however, only stated that the dependants M/s. Ferani Hotels Pvt. Ltd. can continue construction and sale of flats in concurrence with land owners, till the court decides the dispute between the parties. Therefore, it does not mean that the income in respect of amount deposited in designated bank account is accrued to the assessee for the year under consideration; consequently, it can be assessed under the head income from other sources. The Ld. A.R. for the assessee further submitted that the AO has assessed total advances received by the assessee upto assessment year 2011-12 under the head income from other sources as nonexistent liability, but provisions of section 56 does not permit the AO to assess income of earlier years in the year under consideration. The Ld. A.R. further submitted that assuming for a moment but not accepting, the liability is ceased to exist, but provisions of section 41(1) of the Income Tax Act, 1961 cannot be invoked, if income is assessed under the head income from other sources. In this regard, he relied upon various judicial precedents including the decision of ITAT Kolkata Bench in the case of DCIT vs. M/s. Everyday Industries India Ltd. in dated 03.02.2016. The assessee had also relied upon the decision of ITAT Mumbai, in assessee’s own case, in ITA No.1033/M/2018 dated 27.03.2019 and argued that under identical set of facts, the Tribunal held that amount lying in designated bank account opened by the developer in the name of the assessee and consequent interest is integral part of the funds under the custody of the court and said amount is not accessible to the administrator. The assessee had also relied upon the decision of Hon’ble Karnataka High Court in the case of CIT vs. L. Sambasiva Reddy (2015) 62 Taxmann.com 174 and the decision of ITAT, Mumbai in the case of Bombay Gowrakshak Mandali vs. ITO in ITA NO.5508/M/2014.

We have heard counsels of both parties, perused materials available on record along with orders of the revenue authorities. We have also carefully considered case laws cited by both sides. The fact which leads to impugned dispute are that the assessee entered into a development agreement and power of attorney infavour of M/s Ivory Hotels & Properties Limited and M/s Ferani Hotels Private Limited in the year 1995 for development of certain parcel of lands in Mumbai. The Administrator of the Estate of late EFD terminated the Development Agreement and filed Suit in Bombay High Court in 2008. Upon termination of the Development Agreement in May 2008, the Administrator had instructed ICICI Bank not to accept deposits being 12% share of the sale proceeds receivable under the Agreement dated 02.01.1995. Since Estate of EFD as well as its Banker i.e., ICICI Bank was not accepting the payment of 12% share of the sale proceeds, Ferani su-motto, unilaterally opened a Current A/c bearing No.843184512 with Indian Bank, Bandra Branch, Mumbai under the nomenclature/cause title of "Ferani Hotels Pvt. Ltd-NN Wadia share" and utilized for depositing the 12% share of the proceeds arising from sale of flats/units by Ferani after the determination of the development agreement in 2008. Although such A/c was opened by Ferani: the Administrator was never informed about bank name, details of such an A/c nor had the Administrator authorized Ferani to open the said account and collect and deposit such sums in the said account. The Administrator moved an application bearing Notice of Motion No. 1863/2008 in Suit No. 1628 of 2008; seeking ad-interim and interim Injunctions against Ferani who alone was unilaterally carrying on development work in terms agreement dated 02.011995 even after the agreement was determinated and power of attorney given to both developers was withdrawn. The hearing of the motion was conducted on 24"'June 2010. The order thereon as pronounced by the Single Bench of the Bombay High Court on 19t1 July 2010. In its order dated 19.07.2010 the Hon'ble Bombay High Court found prima- facie case in favour of the Administrator of EFD and observed in Para-68 (Page-771-772) as follows:

We further noted that During the hearing on the Notice of Motion before Single bench of the High Court, Ferani raised the plea of limitation in terms of Sec. 9A(1) of the Civil Procedure Code. The Court noted that since the plea regarding bar of limitation was a preliminary issue which went to the root of the jurisdiction of the Court it had to be decided in the first instance. Since the preliminary issue of limitation was required to be decided first, the Court ordered Ferani not to put any party either genuine third party or related parties in possession of the constructed premises except with the approval of the assessee pending the Suit. The Court also directed that the issue relating to limitation would be decided first being the jurisdictional issue. Since in the order dated 19.07.2010 the Bombay High Court had issued injunction against Ferani from handing over possession to the Flat purchasers; an appeal being Appeal No. 817 of 2010 was moved before the Division Bench of the Bombay High Court by Ferani. Similarly, since the injunction as sought by Estate EFD was not granted; counter appeal being Appeal No. 806 of 2010 was filed by Estate EFD before Division Bench of the Bombay High Court. The Division Bench of the Bombay High Court by its judgment dated 19.07.2012 (Page 787- 822) decided these Cross Appeals which arose from the judgment of the Bombay High Court order dated 19.07.2010 passed in relation to Notice of Motion No. 1863 of 2010 seeking ad interim relief. This is apparent from the opening para of the Judgment which reads:

We further noted that from bare perusal of the judgment dated 19.07.2012, it is very clear that the Division Bench of the High Court did not adjudicate the Suit filed by the appellant wherein the assessee had requested for granting relief in the form of cancellation Agreement dated 02.01.1995 and possession of the property. The Bombay High Court had granted liberty to the assessee even to apply for interim relief once the preliminary issue was decided by the trial court. It is therefore factually and legally incorrect to canvass a proposition that in view of the judgments of the Bombay High Court dated 19.07.2010 and 19.07.2012 the assessee’s plea for grant of injunction against Ferani was rejected forever and thereby the sale agreements executed by Ferani had become final and consequently therefore the income embedded in the entire advance received during the period 1996-97 to 2010-11 become chargeable to tax in AY 2011-12. Further, the contention raised to this effect by the Id. Counsel for the revenue is not supported by the specific liberty granted by division bench in its order dated 19.07.2012. It is also to be noted that the sum of Rs 269.48 crores assessed as income in AY 2011-12 includes only Rs. 156.48 Crores received under the agreement with Ferani and remaining sum of Rs 113 Crores was received under the agreement with Ivory. In respect of Ivory, there was no order of the court either on the Notice of Motion or in the suit filed. In that view of the matter, inference against the assessee could not be drawn in AY 2011-12 in relation to amounts received in total in Rs 269.48 Crores. As regards agreement with Ivory there was no development during the financial year 2010-11 so as to warrant drawing any inference that income to the assessee accrued during the relevant year in respect of sums received up to 2008-09 under the agreement with Ivory. It is also entirely incorrect on the part of the AO as also the Ld. Counsel for the Revenue to interpret & hold that the judgement of Bombay High Court dated 19.07.2012 finally adjudicated upon the rights and obligations of the parties arising from the Development Agreement dated 02.01 .1995. The AO while completing the income tax assessment order for A.Y. 2011- 12 interpreted the judgment of the Bombay High Court dated 19.07.2012 in the manner that the Court had finally decided on the assesses entitlement to receive the consideration on sale of the constructed spaces in his own right even though the Suit has remained pending even till today. In fact the Hon’ble High Court directed that pending hearing and final disposal of the preliminary issue; Ferani would maintain the accounts and to continue depositing an amount equivalent to 12% of the gross sale consideration in the designated Bank account. The Court further directed that the amount upon deposit would be invested in Fixed Deposits to abide by the further orders of the Ld. Trial Judge. From bare perusal of the order of the High Court's judgment: it was evident that nowhere the High Court had in any manner expressed any opinion or made any observation that the moneys deposited in the designated A/c by Ferani could be appropriated by Estate EFD or that the Estate EFD could exercise control or domain either over the amounts deposited in the designated A/c or over the fixed deposits made by Ferani out of the sums deposited in the designated A/c. Nowhere the Court had even indicated that in its opinion Estate EFD could have any access to the sums collected by Ferani. Keeping in mind the fact that Estate of EFD in the Suit filed had requested for cancellation of the Agreement dated 02.01.1995 and had sought restitution of the property in its original form, the Court had categorically directed that the amounts invested by Ferani in fixed deposit would abide by the further orders of the Trial Judge trying the Suit filed by Estate of EFD. In the circumstances, it is very clear that the Court was very categorical in its direction that the amount collected by Ferani would remain under its exclusive control and over which Estate of EFD would neither have any control or access. Further this fact has been accepted by the ITAT "E" Bench Mumbai for AY 2013-14 in its order in Dt. 27.03.2019. The coordinate bench of the ITAT agreed with the assessee’s contention that the amounts collected and kept in deposit by Ferani was under court custody and its disposal dependent upon the final order of the Court trying the suit. The relevant findings of the Tribunal are as under:

We further noted that after the Agreement for development was terminated in May 2008 and the Suit was filed in Bombay High Court, only one of the Developer viz. Ferani unilaterally continued to execute Agreements for Sale in favour of the Flat purchasers by using the Power of Attorney executed in its favour in January 1995, even though said Power of Attorney was legally revoked in 2008. Since Administrator was never party to any of the Agreements unilaterally executed by Ferani and no part of the consideration ever reached the Bank A/c of Estate EFD, the assessee rightly neither accounted the receipt of the part consideration in its books nor reported any gain or profit accrued on execution of Sale Agreements in the I T returns filed

In this factual back ground, the question that needs to be first answered is whether the AO was right in stating that income from sale of flats under agreement dated 2-1-1995 is assessable under the head income from business or profession. The issue of head of income under which amount received towards 12% share of income from sale of flats under agreement dated 2-1-1995 is assessable in attained finality, because the Hon’ble Supreme Court for the A.Y. 2003-04 had accepted the contention of the assessee that income is assessable under the head income from capital gain in SLP filed by the revenue. Therefore, in the first instance the Id. Counsel for the revenue should have restricted his arguments with reference to the grounds of appeal which arose from the orders of the authorities below. It is not permissible for the counsel of the revenue to make out a case which the revenue itself had never made out. In the present case, appellant before this tribunal is the Assessing Officer who had passed the assessment order. In the order passed under section 143(3), the A.O. had consciously and after due application of mind to various facts opted to assess the income under the head "Other Source" and not profits and gains from business. In the circumstances, while representing the A.O., his counsel cannot be permitted to make out a case which was not the case of the A.O. at the assessment stage. It is further material to draw attention to the fact that CIT(A) in his order recorded a categorical finding that the amounts assessed as income were received as 'advance" from various persons to whom the assessee had agreed to transfer his right, title and interest in land. The income embedded in such advance could therefore be assessed only under the head "Capital Gains" and not under any other head of income. Further such income could only be assessed in the relevant previous year in which transfer of the capital asset took legal effect On scrutiny of memorandum of appeal, it was noted that, in four grounds of appeal the Revenue has not challenged the said specific finding and directions of CIT(A). In absence of any specific challenge to the CIT(A) finding in the grounds of appeal, the Revenue cannot be permitted to raise arguments in relations to head of income, more particularly when the matter was settled in earlier years.

It is pertinent to note that, no taxable event contemplated by section 2(47)(v) and section 45 of the I T Act., had taken place during the financial year FY 2010-11 so as to enable the AO to assess the amounts received during the FY 1996-97 to 2010-11 to be assessed as income of the AY 2011-12. It is further material to state that the AO himself has contradicted his conclusion because after completion of assessment for the AY 2011-12, he reopened the assessments of the AYs 2007-08 to 2010-11 u/s 147 of the Act for assessing the advances received from the flat purchasers in the relevant financial years on the plea that income was assessable in the respective years when agreements were executed and amounts were received The assessee never in the past changed holding of his land from "capital asset" to "stock in trade". The income tax assessment of the assessee for the AY 1995-96 i.e. the year in which development agreements were executed, was completed u/s 143(3), In that order, the AO did not record any finding to the effect that by entering into Development Agreement coupled with the receipt of Security Deposit of Rs 200 Lacs the land was converted into "stock in trade". Even in the assessment order for the AY 2003-04, when the assessee had offered the income on execution of two conveyances the AO assessed the said profit as business income by following the reasons discussed in the prior year which were disapproved by the Bombay High Court. In the assessment order for the AY 2003-04 no case was made out by the A.O. that the Land which was subject matter of the Development Agreement dated 02.01.1995 was converted into "stock in trade" because of the fact that transfer of land was under a development agreement. In absence any such finding in the prior year's assessments completed under section 143(3), the AO could not make out an altogether new case when factual matrix of the case did not change in the FY 2010-11. Further, virtue of signing of development agreement dt. 02.01.1995, land did not change the colour/character from investment/capital asset to stock in trade. We further noted that land was acquired way back in 1923 and since then it was held as capital asset/investment. The Administrator along with Bachoobal Woronzow (BW) being the sole beneficiary of the Estate of late E.F.Dinshaw entered into the development agreement in 1995 even though the land was inherited as far back in 1936. In other words, the Administrator of the Estate and the sole beneficiary dealt with the land for the first time, almost after 60 years from the time land was inherited. All the above fact clearly demonstrates that holding of land cannot be construed as stock in trade thereby the resultant gain also cannot be taxed under the head business income. In any case, the AO in his order ultimately taxed the income under head "Income from other sources" while computing the total income of the assessee. This clearly proves that AO himself was not convinced that taxability of this income under the head "business Income". The department has also rightly not taken any ground of appeal to tax the same under the head business. We, therefore, are of the view that the Ld. Counsel is trying to open a concluded fact on taxability of income under the head "capital gain", though such grounds are not pleaded in present appeal filed by the department.

From the plain reading of the findings of the Supreme Court in the case of GTC, it was evident that the court was never called upon to decide the nature and character of GTC's land holdings nor the court was deciding the question as to whether the income on sale of immovable properties was assessable as capital gains or business income. Therefore it is incorrect to say that Hon’ble SC had decided issue of conversion of capital asset into stock in trade. In this regards, it is relevant to make a reference to very important observation of supreme court in the case of CIT vs Sun Engineering works (198 ITR 297). The observations are as follows "it is neither desirable nor permissible to pick out a word or a sentence from the judgment of this court, divorced from the context of the question under consideration and treat it to be complete "law" declared by the court. The judgment must be read as a whole and observations from the judgment have to be considered in the light of the questions which were before this court. A decision of this court takes its colour from the question involved in the case in which it is rendered and while applying the decision to later case, the court must carefully try the ascertain the true principle laid down by the decision of this court and not to pick out words or sentences from the judgment, divorced from the context of the question under consideration by this court, to support their reasoning. It is not proper to regard a word, clause or a sentence occurring in the judgment of the supreme court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment"

The Id. Counsel has further relied on the case of Raja J. Rameshwar Rao vs. CIT, reported in 42 ITR 179 (SC) in support of his contentions. The facts of this case are totally different and cannot be relied on in the present matter. In this case, the person acquired the land with a view to selling it later after developing it. The person also went on dividing the land into plots, developed the area to make it more attractive and sold the land not as a single unit but in parcels. Based on these facts, the court has upheld that he is carrying on business and making a profit. Facts of this case were somewhat similar to the facts involved in the case of G. Venkatswomi Naidu and Co Vs CIT (35 ITR 594)(SC). The judgment of the Bombay High Court in the assesses case was rendered after due consideration of this SC judgment which has laid down several tests for deciding whether the income derived from dealings in land is to be assessed as business income or capital gains. After examining the facts and circumstances in which land was acquired by FED and the manner in which it was held by the successors and considering the changed circumstances in which the holding of the land itself became difficult, the Bombay High Court had categorically held that the dealings of the Administrator with the inherited land were with a view to protect the corpus of the estate as well as interest of the beneficiary and therefore, could not be regarded as business or adventure in the nature of trade and therefore the income was assessable only under the head Capital Gain' and not under the head business".

The Id. Counsel has made statement that 'income pertaining to sale of flats prior to filing of suit would be taxable for AY 2011-12 as stated above while the one relating to period after filing of the suit may be subject to application of section 52 of the Transfer of property Act, 1882 and the order of the Bombay High Court dated 19th July 2010. In this regard, it is important to note that since the Agreement itself stands determinated, the question of declaring an income from the proceeds calculated on the alleged Agreement cannot be part of taxable income. Under such circumstances, the amounts received from the flat purchasers will be liable for tax subject to outcome of the decision in civil suit. Therefore, entire amount assessed by A.O. for A.Y. 2011-12 is incorrect. Further, it is noted that the bank account was opened by Ferani in the name of Ferani Hotels Pvt. Limited A/c - N N Wadia share", but the bank statement shows in the name of Ferani Hotels Pvt. Limited" only and not the Administrator of EFD. The said account was never opened by the Administrator nor had the Administrator consented for opening of such an account. The Administrator had never provided his PAN nor the Bank completed KYC formalities in respect of this account. The account title includes the name of Shri. N.N. Wadia; nowhere it clarifies as to in what capacity name of Shri NN Wadia has been mentioned. It is material and pertinent to note that Shri N.N. Wadia is assessed to tax in his own name and in his own right in respect of income which he earns in his individual capacity as Administrator of the Estate of EFD in terms of Section 168 of the Act. As such, the mere reference to the name of N.N. Wadia in the account opened and operated by Ferani Hotels Pvt. Ltd., could not lead to conclusion that the amounts deposited by Ferani belonged to Estate of EFD. The Administrator Estate of E.F. Dinshaw does not have any control or domain over neither the said account nor such account can be operated by the assessee.

We further noted that the coordinate bench of this tribunal in its order 27 03.2019 in for AY 2013-14 had taken note of this factual and legal background. Taking into account specific directions contained in the High Court's order dated 19.07.2012, the tribunal agreed that the rights and obligation of the parties flowing or arising from or under the agreements dated 02.01.1995 where indeterminate. The ITAT also agreed that the fixed deposits made by Ferani under the order of the High Court did not belong to the Administrator as he neither had control or domain over the said amounts and these fixed deposits were to be governed by the order of the Trial Court before whom the suit was pending. Once the tribunal has held that the amounts collected by Ferani during the pendency of the suit and kept in FD's are amounts kept in custody of the court and not accessible to the Administrator till disposal of the suit and to be governed by the final order of the high court, then the amounts so collected cannot be considered to be income of the assessee. Further, the AO has brought to tax advances which the assessee had received during the period 1996-97 to 2008-09 totally Rs 269,48,90,856/- under the head other source. We are surprised to note that the AO had made additions contrary to the provision of section 56 of the Income Tax Act which govern the assessment of income under the residuary head. Further, said provisions nowhere permit the A.O. to assess receipts of prior years in one lump sum in later year on the ground that in prior years the receipt was not taxed. The A.O., on one side has admitted that Rs 269.48 Crores was received for transfer of asset and there were serious disputes between the developer and the assessee and on the other hand an advance shown under liabilities in balance sheet is income of the assessee without assigning any reasons as to how a liability takes character of income for the AY year 2011-12. The 'asset in question is inherited land which was acquired in 1923 by FED and inherited in 1936 by E.F.D. The Bombay High Court in its judgment considered the circumstances in which the entire land was inherited by the children of F.E.D. and held that the Administrator was holding this land as capital asset and therefore income on its transfer can only be taxed under the head 'Capital Gains". In the circumstances, once the A.O. has admitted that Rs. 269.48 crores was received as Advance against transfer of asset, then he could not under the provisions of section 56 of the Act assess the same as income because none of the taxable events contemplated under section 56 took effect in FY 2010-11. Moreover as held by the High Court, the land in question is capital asset of the assessee, and hence, income embedded in advances against the transfer can only be assessed under the head capital gains and that too in the year in which 'transfer" of the capital asset legally takes effect and not in any year. Since, in the suit the assessee has claimed for cancellation of development agreement in its entirety and has prayed for repossession of the entire land in its original form, the transfer of the capital asset if any can happen only when the suit of the assessee is finally decided by the Court and the decision of the court becomes final. In view of these facts, the amounts which the assessee received during the period 1995-96 to 2010-11 could not be charge to tax as income in AY 2011-12, under the head income from other source or any other head of income.

In so far as the observations of the AO in para. 26 of the assessment order, we find that although the A.O. considered the advances received in the prior years as income for AY 2011-12 on the ground that there was cessation of liability, but nothing more has been elaborated on this point. In this regard, it is pertinent note that in the assessment order, the A.O. assessed the income under the head income from other sources. We further note that section 56 of the Income tax Act, 1961 defines the scope of the income which is chargeable to tax under the head Other Source. The residuary head of income can be invoked only when the income is not found assessable under any other head of income. In the instant case, as admitted by the A.O., the advances were received against the transfer of land and therefore any consideration received for transfer of immovable properties could not be assessed under the head other sources. Further, the A.O has also accepted the fact that there were serious disputes between the developer and the assessee regarding the validity of the lease agreement as well as development right agreement. The documents on records prove beyond doubt that such disputes were sub judice even till March 2011 being the end of previous year. Once it is evident that the disputes were sub judice then, it could not be argued that during the pendency of the legal proceedings there was cessation of liability. As such on the facts of the case, it could not be established that there was cessation of liability. It is further observed that section 41(1) has no application, because the liability contemplated by that section relates to trading liability for which deduction was allowed to the assessee the computation of income of any earlier year. In this case, the amount assessed was never allowed as a deduction in any earlier year.

In this regard, the assessee placed his reliance on the decision of the coordinate bench of this tribunal in dated 06.02.2015 for AY 2010-11 in the case of Bombay Gowrakshak Mandali vs I T.O. In this case, the assessee trust owned a property in Mumbai. The trust had entered into a development agreement with M/s Lokhandwala Construction Industries Limited for which consideration of Rs 11 Crores or Rs 50 per square feet of available FSI whichever is higher was to be paid. The said trust received Rs 32.50 Crores from the developer. However, since there were disputes with the developer with regards to quantum of available FSI, advance of Rs 32.50 Crore received from the developer was shown as liability in its books. The manner in which the advance received was shown in the balance sheet and the disclosure in relation thereto by way of Notes in the audited accounts was consistently same in all the past years and was accepted by the Revenue in past assessments. In AY 2010-11, the A.O assessed the said sum on the ground that it was income of that year because there was cessation of liability. On appeal by the assessee, the ITAT observed that development agreement was entered in 1984 and advance was received was never disputed. Till preceding year, advance received in 1984 was treated as advance and was never disputed. The fact that from 1984 till date there had being no change in the status of the transaction and there was neck deep litigation was also not disputed by the Revenue. Keeping in mind these facts, the ITAT held that for an amount to be added back under section 41(1) which should bear the charter of income. Nowhere from the orders of Revenue authorities it appeared that during the year, something new happened had which converted the advances into remission of liability to be treated as income. The Tribunal held that invocation of section 41 (1) was uncalled for. We find that facts of the present case are pari materia to the case considered by the Tribunal. Even in this case, the entire transaction with the developers is in neck deep in litigation and the assessee has filed suit requesting for cancellation and restitution of the lands. Even at the beginning and the close of the FY 2010-11, the disputes between parties was sub judice and bearing the order passed on Notice of Motion seeking interim relief and there was no process on the main suit which remained pending. As such, during the relevant year, there was no material change in the factual matrix in the assessee case. We therefore are of the opinion that the decision of the ITAT squarely applies to the facts of present case.

Further, in our considered view in order to tax any receipt as income, it is necessary for the Revenue to show that the receipt of the money is without any conditions attached and the recipient has complete domain, control and ownership over the money received. Wherever money is received in terms of agreement which by itself is disputed and pending for decision in court, then no income embedded in such receipts can be made exigible to tax as income for the simple reason that the recipient has inherent obligation to refund the same to the payer in the case in the event the court decides the other way. In this regard, reliance is placed on the decision of the Karnataka High Court in the case of CIT vs. L. Sambashiva Reddy (62 Taxmann.com 174). In this case, it is the case of the revenue that once the single judge in her order refused to grant injunction against Ferani to proceed with construction, then it automatically lead to conclusion that all agreements with flat purchasers become final and thereby income accrued. We are unable to agree with arguments of the ld. Sr. Counsel for the revenue for the simple reason that in the first place it is to be noted that in the order dated 19.07.2010 the Court restrained Ferani from handing over possession of flats to related as well as non-related third parties till the Notice of Motion was disposed. Once the court restrained Ferani from handing over possession, it implied that the agreements with flat purchasers could not have been given effect to and thereby there would not have been transfer of property in law. Even in the decision of the division bench of the High Court in July 2012, the Court directed the Trial Court to first decide the preliminary issue of limitation in terms of Section 9A of CPC and thereafter to proceed with the suit. It also granted liberty to the assessee at that stage to seek interim relief by moving Notice of Motion. Therefore, it is factually and legally incorrect for the Id. Counsel to contend that upon disposal of assessee Notice of Motion seeking ad interim relief the agreements with the parties become final and income chargeable to tax accrued in AY 2011-12.

We further noted that when, the appeals were fixed for clarification on 22/11/2019, the Ld. AR for the assessee submitted that the Hon’ble Supreme Court, vide its order dated 04/10/2019 passed by the three judge Bench in Ivory SLP and Ferani review petition, decided the reference of question of law in favour of the administrator holding that the issue of limitation cannot be decided u/s 9A of Civil Procedure Code and all the issues, including limitation of petition filed by the parties and the merit of the matter to be decided by the trial court on the basis of contentions of both the parties and also, decide any applications seeking interim injunction/ relief if any. From the above, it is very clear that as of date, there is no material change in factual matrix, because after the administrator determinated the agreements dated 02/01/1995, revoked the power of attorney granted to Raheja and filed the suits in the Hon’ble Bombay High Court in 2008, there is practically no progress and the entire matter is sub-judice. Therefore, we are of the considered view that there is no merit in the contention of the Ld. AR for the revenue that the decision of Division Bench of Hon’ble Bombay High Court in review petition filed by Ferani Hotels Pvt.Ltd, has rest the matter of dispute between the parties regarding development agreement and sharing of sale consideration, and consequently, income accrues to the assessee for the impugned asst year.

In this view of the matter and considering facts and circumstances of this case, we are of the considered view that the ld. CIT(A) after considering relevant facts has rightly held that the AO was incorrect in taxing advances received by the assessee up to the A.Y. 2011-12 as income chargeable to tax under the head income from other sources. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue.

The next issue that came up for our consideration from revenue appeal is taxability of lease rental received by the administrator. The AO has made additions towards lease rental deposited by Ivory and Ferani in separate account under the head income from other sources on the same reasoning on which he had assessed advances under the head income from other sources. It is the contention of the assessee that lease rent allegedly deposited in the separate bank accounts by Ivory & Ferani of Rs. 39.60000/- was not legally chargeable to tax as income of the assessee as there was no privity of contract during the FYs 2008-09 to 2010-11 in terms of which the assessee could have claimed such rent from Ivory & Ferani.

We have heard counsels of both parties and perused materials on record along with orders of lower authorities. We find that in the agreements dated 02.01.1995 with Ferani & Ivory clause 2 envisaged that the assessee would grant a lease of the demised lands for a period of 5 years. In the circumstances, merely because grant of lease was provided in the Agreement dated 02.01.1995 but when in fact the lease deed was never executed in favour of the parties, then said Ferani & Ivory could not presume that lease rights were in fact awarded in their favour by the Administrator. In absence of any formal registered lease agreement, Ivory & Ferani could not legally infer that the lease of land was granted by the Administrator in respect of the lands. The fact that the enforceable lease was not in operation was not disputed by the revenue. The Ivory had accepted contractual tenancy when it had executed conveyance in FY 2001-02 and 2002-03. The assessee had filed copy of lease deed dated 25- 10-2001. We find that clause (iv)(b) of the deed of conveyance dated 25.10.2001 executed between the assessee and Ivory properties and hotels Pvt. ltd and Toyota Lakozy Auto Pvt. Ltd., which clearly talks about contractual monthly tenancy on the expiry of the lease. From the above, it is evident that even if one accepts the claim of the developers that lease for the period of five years was granted the same came to conclusion in January 2000 on expiry of five year period. Thereafter the relationship between the parties was that of landlord and contractual monthly tenant. Before the lower authorities, the assessee had filed requisite documentary evidence to prove that in 2008 the assessee had taken necessary legal steps to terminate the contractual tenancy of each developer. In the circumstances, once the assessee had taken legal steps to terminate the contractual monthly tenancy, the developers could not unilaterally claimed themselves to be having leasehold rights in the land in terms of covenants contained in the agreement dated 02.01.1995.

We further noted that the Assessing Officer before concluding that income by way of lease rent had accrued, failed to bring on record sufficient, adequate and cogent documentary evidence which proved that a legally valid & binding agreement subsisted between the Administrator and Ferani & Ivory in terms of which the assessee had vested right of claiming monthly rent from them. The assessee had taken sufficient legal steps for termination of tenancies which could be inferred only from the conduct of the parties and consequent to the termination of tenancies, the assessee had stopped accepting the monthly payments tendered by Ivory & Ferani. Further, when the assessee stopped accepting the monthly payments, Ferani & Ivory unilaterally opened accounts with the Banks in their own names and continued depositing the monthly sums of Rs.55,000/- . But, fact remains that these accounts were opened by Ferani & Ivory entirely on their own volition and in their own names and the Administrator had never granted his consent either for opening of the Accounts or depositing the monthly sums of Rs.55,000/-. It is also material that there existed no privity of contract either written or implied in terms of which Ferani or Ivory had legal obligation to pay and the Administrator had vested right to demand payment of monthly lease rent. These accounts were opened by these companies by providing details & information about themselves. The Administrator of Estate of EFD had never authorized or permitted either of the companies to open the account nor had it provided any information enabling either of the companies to open these accounts. In the circumstances, on account of unilateral acts of the project coordinators, no income in law could be inferred particularly when no part of the income assessed was either legally due to the assessee or when the amounts were not actually received by the Administrator. The ld. CIT(A) after considering relevant facts has rightly held that the AO was incorrect in taxing lease rent as income chargeable to tax under the head income from other sources. Hence, we are inclined to uphold findings of the ld. CIT(A) and reject grounds taken by the revenue.

In the result, appeal filed by the Revenue for Asst. Year 2011-12 is dismissed.

The facts and issues involved in this appeal filed by the revenue are identical to facts and issues, which we had considered in ITA.No. 1389/Mum/2015, for Asst Year 2011-12, but for figures. The reasons given by us in preceding paragraphs in Asst Year 2011-12 shall mutatis mutandis apply to this appeal also. We, therefore for detailed reasons given in preceding paragraph in upheld the findings of the ld. CIT(A) and dismiss appeal filed by the revenue.

As a result, appeals filed by the Revenue for Asst. years 2011-12 and 2012-13 are dismissed.